UK Regulator FCA Puts Ban on Crypto Derivative Products for Retail Investors

Britain’s topmost financial regulator - Financial Conduct Authority (FCA) - has decided to put a ban on selling crypto derivative products to retail investors.

Earlier this week on Monday, July 1, the FCA published a document titled “Restricting contract for difference products sold to retail clients,” in which states that the regulatory body will soon release a consultation paper that seeks ban of products like cryptocurrency futures contracts, ETFs, and other similar ones.

The FCA writes: “We will shortly publish a CP on a potential ban on the sale to retail clients of derivatives and certain transferable securities that reference cryptoassets.”

Exactly one year back in July 2018, the UK Cryptoasset Taskforce made a public commitment to protect retail investors from exposure to volatile derivative products. The FCA notes that its recent decision is in accordance to the commitment from the Taskforce.

The FCA states that in the upcoming consultation paper, it will introduce new rules which replace the last regulation for crypto-based contracts for difference (CFDs). Speaking to CryptoBriefing, an FCA representative confirmed that the regulator will “shortly” enforce a ban to retail investors for dealing with crypto-based products.

“[W]e will be consulting on potentially banning the sale to retail customers of derivatives linked to certain cryptoassets this year,” the spokesperson said.

Note that this ban will be specifically on leveraged products which allows investors to invest more than their existing collateral. Some of the crypto exchanges offer 100:1 leverage to crypto investors for trading.

However, in another announcement, the FCA has approved a crypto hedge fund pitched by a London-based crypto asset management firm - Prime Factor Capital. As reported by Bloomberg, the company will operate under the monetary guidelines of European Union with a maximum of 100 million euros in assets under management (AUM).

Under the EU regulations, Prime Factor Capital need to appoint a custodian to validate investors’ returns and the fund’s holdings.

Adam Grimsley, chief operating officer at Prime Factor, said: “Most vehicles for investing in cryptocurrencies are outside the scope of regulators and that’s a big problem in a market that has such a bad reputation”.